The Corporate Sustainability of Royal Dutch Shell: A Green Model Investigation into One of the Most Pollutant Corporations in the world

(1)

The Corporate Sustainability of Royal Dutch Shell

– A Green Model Investigation into One of the Most Pollutant Corporations in the world

Author(s): Ana Maria Munteanu,

Leadership and Management in International Context

Xin Guo,

Leadership and Management in International Context

Tutor: Dr. Björn Bjerke Dr. Philippe Daudi Examiner: Dr. Philippe Daudi

Subject: Business Administration Level and semester: Master's Thesis, Spring

2011

(2)

Acknowledgement

We would like to thank Professor Philippe Daudi and Professor Björn Bjerke, who helped make this thesis possible. We feel grateful for the guidance they provided us with and proud to have had them as tutors. In addition, we thank our families and friends for the support system provided throughout this process.

Ana Maria Munteanu & Xin Guo Kalmar, June 2011

(3)

Declaration

We, Ana Maria Munteanu and Xin Guo hereby declare that ‘The Corporate Sustainability of Royal Dutch Shell: A Green Model Investigation into One of the Most Pollutant Corporations in the World’ is the result of our research and work. It has not been used in part or whole for any dissertation elsewhere. All sources of information have been acknowledged in this thesis by complete references to the authors.

Kalmar, June 2011

(4)

Abstract

Title: The Corporate Sustainability of Royal Dutch Shell: A Green Model Investigation into One of the Most Pollutant Corporations in the World

Keywords: Sustainable Development, Sustainability, Corporation, Corporate Sustainable Development, Environment, Society, Resources, Energy, TBL, Reporting, Shell.

In light of never before seen environmental degradation and social injustice, the urgency to move forward on the path of sustainable development has skyrocketed. As Millennials, we see it in our duty to raise awareness about the dangers of our lifestyles and contribute with a solution to measuring sustainability. Corporations alone or along with other market players have been quoted many times as the ones ‘who will save the world’. Thus, the theoretical framework places an emphasis on corporate sustainability, in addition to sustainable development and TBL.

As supporters of the view that corporations will play a defining role, the thesis is an investigation into the sustainability of one of the most pollutant corporations, Royal Dutch Shell. As such, the formulated four-dimensional model (Green Model) stands as an addition to the plethora of frameworks in reporting and describing corporate sustainability. In consequence, the research question is aimed at describing the corporate sustainability of Shell, meaning actions, processes and policies as the focus. As such, the emphasis is on the in-depth description of its sustainable or unsustainable characteristics. The path of sustainability is revealed through an analysis that includes 39 indicators. For this, secondary data was collected from Shell itself and other unrelated sources in an attempt to provide an unbiased perspective. The Green Model also contains a rating scale going from favorable and neutral to unfavorable for a visual representation of findings in all indicators.

The conclusion is based on the Green Model findings in the case study, plus the Dunphy phase model of sustainability, as an additional tool to answer the research question. Thus, the conclusion reveals the good and the bad deeds, which confirm Shell’s dual nature of actions in terms of sustainability along with an indication of the corporation’s future road.

Regarding the case study, Shell was found to hold an unfavorable position on the path of sustainability based on the Green Model. Although this is not surprising, the focus is on considering the positive aspects along with the negative ones. This framework indicated the four footings are not balanced. First, the economic dimension is favored. Second, the environmental dimension versus the social one looks at a disadvantage for the ecosystem, and the fourth dimension, sustainable thinking is deemed unfavorable because the future energy plan is unsustainable. In addition, Shell is seen positioned in between the phase of efficiency and that of strategic proactivity, based on the Dunphy phase model. Thus, these findings point to what Shell can do next in order to

(6)

move forward on the path of sustainability. But, also they bring to surface the process of alignment of such a corporation. The project is concluded with a discussion of the duality of Shell, recommendations, as well as a description of the Ecotopia, as the ultimate goal of sustainable development.

(7)

List of Tables

Table 3.1 The 7 Principles of the Sustainable Enterprise ... 25!

Table 4.1 Economic Indicators ... 40!

Table 4.2 Environmental Indicators ... 41!

Table 4.3 Social Indicators ... 42!

Table 4.4 Sustainable Thinking Indicators ... 43!

Table 4.5 Phase 4 on Dunphy Phase Model of Sustainability: the Efficient Organization ... 45!

Table 4.6 Phase 5 on Dunphy Phase Model of Sustainability: the Strategically Sustainable Organization ... 46!

(11)

List of Figures

Figure 1.1 Human Demands vs. Earth’s Resources ... 2!

Figure 3.1 Model of Theoretical Framework ... 12!

Figure 3.2 Symbol of WCR ... 14!

Figure 3.3 Green Economic Thinking vs. Conventional Sustainability Thinking ... 16!

Figure 3.4 Vicious Circle of Unsustainability ... 16!

Figure 3.5 The Interplay between Emerging Davids and Greening Goliaths ... 23!

Figure 3.6 Organizations as VITO ... 25!

Figure 3.7 Dunphy Phase Model of Sustainability ... 26!

Figure 3.8 The Sustainability Change Matrix ... 28!

Figure 3.9 From Externalization to Internalization ... 30!

Figure 3.10 The Emergence of Shear zone in TBL as Seen by SustainAbility ... 32!

Figure 4.1 Green Model ... 40!

Figure 4.2 Dunphy Phase Model of Sustainability ... 44!

Figure 4.3 Green Model with Indicators ... 47!

Figure 5.1 Environmental Dimension Rating Scale Summary ... 60!

Figure 5.2 Social Dimension Rating Scale Summary ... 69!

Figure 5.3 Sustainable Thinking Dimension Rating Scale Summary ... 75!

Figure 6.1 Duality of Shell ... 81!

Figure 7.1 Gold Miner in Mozambique ... 90!

Figure 7.2 Levels of Ecotopia ... 91!

(12)

List of Abbreviations

API: American Petroleum Institute BP: British Petroleum

CCS: Carbon Capture and Storage CEM: CO2 and Energy Management CO2: Carbon Dioxide

CSR: Corporate Social Responsibility EIA: Energy Information Administration EROEI: Energy Return on Energy Invested

FTSE: Financial Times and the London Stock Exchange GDP: Gross Domestic Product

GFT250: Global Fortune Top 250 GHG: Greenhouse Gas

GMO: Genetically Modified Organism GRI: Global Reporting Initiative HVC: Hybrid Values Chains IEA: International Energy Agency

IUCN: International Union for Conservation of Nature and Natural Resources IPIECA: International Petroleum Industry Environmental Conservation Association LEED: Leadership in Energy and Environmental Design

LNG: Liquefied Natural Gas

MIT: Massachusetts Institute of Technology Nef: New Economics Foundation

NGO: Non-governmental organization

OGP: International Association of Oil and Gas Producers Plc: Public Limited Company

SBSC: Sustainable Balanced Scorecard

(13)

SIA: Social Impact Assessment

SOPI: Sustainable Organization Performance Index

SPDC: Shell Petroleum Development Company of Nigeria Ltd.

SSD: Strong Sustainable Development TBL: Triple Bottom Line

TNC: The Nature Conservancy

UNESCO: United Nations Educational, Scientific and Cultural Organization UNEP: United Nations Environmental Programme

WCED: World Commission on Environment and Development WCR: World Conservation Report

WSD: Weak Sustainable Development WWF: World Wildlife Fund

(14)

1. INTRODUCTION

This chapter introduces the background context, explains the purpose and justification of the thesis, and discusses the research question guiding the project. At the end, the structure of the thesis is exposed.

1.1. Research Context: The Clock is Ticking

The research context is meant to introduce some of the difficulties of our planet and societies as a support for our belief that development, industrialization, and the rise of the corporations, especially, have contributed to the imbalance we experience today. Our aim is not to expose alarming facts, but rather to sound another alarm that the clock is ticking and corporations among others need to step up. However, for that to happen, first we need to become more aware of the impact of our decisions and actions. For this reason, facts about global warming, population growth and consumption are presented. Given the fact that this chapter in particular comprises a wide range of quotes, Appendix 3 contains all quotes used in the thesis, as a way of providing a snapshot of the statements that built our project.

We have arrived to the 21st century with great accomplishments and advances, but deeper worries for the society and environment due to the unforeseen or disregarded opportunity costs of our activities, mainly of the past 150 years (Nef 2009, p.17). In the current scientific community there is overwhelming consensus regarding the contribution of our footprint to the disequilibrium of the ecosystem (The Age of Stupid 2009, min.24). According to Yann Arthus-Bertrand (Home 2009, min.10), each person has a role in maintaining the balance of the ecosystem. However, this balance can be easily shattered when one puts self-interest in high regard. Thus, we are faced with the challenges of reinventing our value system and in consequence, the economic model.

Growing awareness about the dangers of global climate change has gradually made more and more individuals and businesses join the fight for sustainability. Although there is doubt as to what are the some of the hidden agendas behind business sustainability, it is clear that we are in a period of transition. The figure below (Figure 1.1), symbolically describes the strain people put on the planet.

Human demands are exceeding the earth’s resources, which indicate the two will need to be synchronized in the future.

(15)

Figure 1.1 Human Demands vs. Earth’s Resources (Source: Porriott 2008)

Global Warming

The economy and the ecosystem in which we live are linked. Everything we do has an impact on the planet. Oil or ‘ancient sunlight’ as some call it (Thom Hartmann in The 11th Hour, min.45) is the fuel of our economies. The desire to satisfy needs and become profitable has lead to diminishing quantities of this non-renewable source of energy. Actually, the backbone of our world is oil, despite the fact that we are technologically advanced to build an economy that relies mostly on renewables.

For instance, in 1 hour the sun releases the same amount of energy the whole planet consumes in 1 year. In consequence, ‘all we have to do is look for the sun’ (Home 2009, min.85).

Though our activities, mankind has been able to destabilize molecule by molecule the climatic balance of our planet (Home 2009, min.61). Every year, we are experiencing much faster changes and different patterns in weather and natural processes. ‘The ecosystem does not have borders’

(Home 2009, min.67). Some have the impression that what one does in one country, does not have an impact beyond its borders. For instance, one sad example is the case of the Inuit people living beyond the Arctic Circle in Canada. Their habitat is diminishing in size every day. And this is impacting their survival. It is estimated that the ice cap is 40% thinner than it was 40 years ago (Home 2009, min.68). Thus, people are myopic regarding the impact of the lifestyles (Planeten 2006d, min.29). In addition, scientists estimate that by 2050, a quarter of the world’s species will be faced with extinction (Home 2009, min.63). Animals are dying at a rate that is 1,000 times higher than the natural rate (Home 2009, min.76). As some see it, we have to ‘give up a lifestyle that has clearly become unsustainable’ in order to progress (H2Oil 2009, min.66).

(16)

The economist Tim Jackson pointed out that the global economy has doubled in the past 25 years, while 60% of the world’s ecosystems have been degraded (Sustainable Development Commission 2009, p.6). In addition, there was also a steep increase of 40% in global carbon emissions compared to the Kyoto base year of 1990 (Sustainable Development Commission 2009, p.6). All in all, Porritt (2008, p.14) stated that ‘climate change is the greatest market failure the world has ever seen’.

Population Growth

Engagement in sustainability becomes even more critical when considering population growth. The rise in population will put a further strain on the fight for the resources of the planet. Since 1960 the population has more than doubled. It went from 3 billion to approximately 7 billion in just 50 years.

This is the fastest growth ever experienced (National Geographic 2011, pp. 39-39). Scientists estimate mankind will reach 8 billion by 2024 and 9 billion by 2045 (National Geographic 2011, p.31). The question now is, ‘how to sustain the life of 9 billion if at almost 7 billion we are not doing well’ (Planeten 2006c, min.3).

In addition, most of the growth is expected to come from developing countries that will tap into natural resources. So, a second question is, ‘how to address sustainability in a society where more and more people will be living Western lifestyles’ (Planeten 2006c, min.4).

Consumption

We live in a time of great disparities. Never before have we seen so many extremes. There are so many poor people yet some very rich individuals at the same time (Dunphy at al. 2003, p.3). The gap between social classes is alarming. According to Home (2009, min.66), it is estimated that worldwide 5,000 people a day die because of dirty drinking water. As a matter of fact, more than 1 billion people have no access to safe drinking water and go hungry every day. In contrast, the world spends 12 times more on military defense than on aid to developing countries (Home 2009).

The same documentary (Home 2009, min.76) points out that 80% of resources are consumed by 20% of the world’s population. The wealthy nations (US, Canada, Europe, Japan, Australia, and New Zealand) use the largest portion of resources now, but emerging economies are expected to catch up (National Geographic 2011, p.42). In contrast, China manages to feed its billion-plus population with only 20% of the world’s arable land (National Geographic 2011, p.46). More importantly, New Economics Foundation (Nef 2009, p.20) warns that if all would consume at the level of a European citizen, then we would need another planet to sustain us.

To sum up, our activities have been measured in economic terms mainly. They have been taken out of the context. Some things are simply taken for granted in economics, such as the sunlight. Others are fully integrated into financial equations, such as arable land and forests. In essence, negative

(17)

externalities have not been fully integrated in the price of a product or service in order to be passed on to consumers. This has allowed for the vicious circle of consumption to continue without making people accountable for what they buy. In our view, corporations can be seen as the responsible actors, but, more importantly, as the ones having the size and power to make a change in the fight for sustainability.

1.2. Research Problems

The research problems and backbone of our motivation refer to global warming, spiraling population growth, scarce resources, and irresponsible consumption to name a few, as consequences of human activity on the planet. Our actions, individually and collectively have contributed to the disequilibrium we are experiencing in the ecosystem. Advances in technology, industrialization, acerb competition, and the search for profitability have led some to the belief that corporations are in part responsible for the imbalance of the environment and society. As such, the rise of corporations has been often quoted as the contributing factor to the above mentioned problems by researchers and scientists (Dunphy et al 2003, p.3). Fingers have been pointed at corporations because there are the backbones of the economic system. They produce almost everything around us (Dunphy et al 2003, p.8).

Some say the sustainability path will be led by corporation alone (Dunphy et al. 2003, p.4), green entrepreneurs (Ignatius 2010, p.12) or by collaborations between corporations and green entrepreneurs (Drayton & Budinich 2010, pp.56-64). Others believe all individuals will become accountable and will have the power to make sustainable changes (Planeten 2006b, min.34). On one hand, established organizations are believed to lead the change because of their size and impact. On the other hand, green entrepreneurs are believed to be able to adopt sustainability easier; however the impact of their actions will be limited to their size (Hockerts & Wüstenhagen 2010, p.481). In consequence, Hockerts & Wüstenhagen (2010, p.481) further theorize that an industry will become more sustainable as the compound effect of the interplay between established organizations and new small companies increases.

To sum up, the endeavor of sustainability has been adopted by many corporations in light of public pressure, fear of reputation loss, changing customer demands, but also truthful awareness (Dunphy et al. 2003, p.4). Nowadays, the majority of corporations pay at least lip service to sustainability. But, more changes are required in order to conquer this challenge. In consequence, our project is an investigation into some of the changes that have happened in the pursuit for sustainability for a corporation that is seen as the bad dog. We believe it is interesting to analyze a corporation from such an industry that many point the finger at, because of the interplay between difficulties,

(18)

challenges and opportunities. We aim to expose the not only the negatives, but also the positives, in order to provide objectivity and not discount the good deeds in lights of the bad ones. The quotation that best describes our vision is: ‘We cannot solve our problems with the same thinking we used to create them’ (Albert Einstein cited in Scott Cato 2009, p.105). Thus, a return to normal ways of business is not an option anymore (Jackson 2009, p.1). In essence, we are trying to find answers, and in this way, find solutions for the future of corporate sustainability.

1.3. Purpose

However, there is no single solution for tacking the problems of our societies and environment, but blind optimism is not an alternative anymore. Many solutions have been spread, yet many need to be discovered and examined. Thus, our thesis is another contribution to the area of sustainability in hopes of adding to the existing knowledge by showing our own perspective. The purpose of the thesis, in its broad sense is raising awareness of this critical situation and inspiring others to pursue sustainability. In a narrow sense, the purpose is to shed more light on the issue of sustainable development in corporations. For this, one of the most pollutant companies in the world will be chosen for studying.

The analysis will be conducted using the Green Model, a framework that adds a fourth dimension (Sustainable Thinking) to the traditional Triple Bottom Line (TBL) perspective. There are many protocols for measuring and describing a company’s sustainability, but we think it is necessary to formulate our own model, as a way of making a statement and contributing to this discourse. The purpose of the thesis is to provide a detailed snapshot of the sustainability endeavors of the corporation selected as well as to see where the company is placed on the path of sustainable development now and in the future. Since, it is a corporation that is part of a pollutant industry, the focus is not on how sustainable it is, but rather on its processes, actions, and policies. In other words, we are aiming to provide a voice to such a company when it comes to sustainability, by exposing both positive and negative facts.

1.4. Justification

Given the facts listed above, we think it is in our duty as the future generation to take responsibility and join the fight for sustainability. The thesis is a push for sustainable development, a proof that even if this agenda is hard to define, it is possible to accomplish or make progress towards it. Thus, the project is built around the belief that sustainability is the expression of the triple footing (economy, environment, and society). We may never get to the point where there is full sustainability, but nevertheless, the ultimate goal is reaching for the impossible. For this reason, the thesis will be finalized with a Utopia, as the representation of the perfect strategic intent (Ecotopia).

(19)

The thesis looks at corporations because on one hand, they are believed to have a large impact on the imbalance of the environment and society. On the other hand, their far outreach means they also have a huge potential of remediating these problems by engaging in sustainability. As compared to entrepreneurs or small companies, their size is like a double-edged sword. It can be used to do well, but inherently, at the same time it has repercussions. In other words, corporations are the engines of growth, but also the producers of negative externalities.

The model will analyze and describe one of the most pollutant companies in the world and illustrate its characteristics in an illustrative case study. The reason for this choice is the desire to learn from a market player in a branch of business that is very polluting to the environment and society. It is far easier for a corporation in the fruit industry to switch to organic fruits, but far more difficult for a large chemical manufacturer to become more sustainable. Many fingers have been pointed at these companies from polluting industries, yet not many have been studied. There are many studies of companies, which are leading the way in sustainability, but not many describing the positive and negative characteristics of pollutant companies that are trying to adapt to sustainability requirements.

Sustainability must be a criterion for evaluating development (Munro cited in Trzyna 1995, p.35).

We believe this project to be most important to our generation, the ones now embarking in the business world. The thesis is also important to the research community of sustainability and to corporations in the same manner.

1.5. Research Question

The research question guiding the thesis and the illustrative case study presented in Chapter 5 is:

What are the sustainable and unsustainable characteristics in terms of processes, actions and policies of the selected corporation based on the Green Model? The question’s purpose is to analyze the sustainability actions enacted by the corporation. The 4-dimensional Green Model will be used to answer this question along with the Dunphy Phase Model, as a second tool to strengthen our findings. In essence, utilizing 39 qualitative indicators, we will attempt to bring to surface the position of the corporation on the sustainability path. of becoming sustainable. All is all, our thesis is an immersion into the theoretical and practical field of environmental and social issues. From here, the Green Model is resurfaced and then after operationalized through an illustrative case study.

1.6. Thesis Structure

The thesis is structured in 7 chapters, going from Introduction to Utopia. Chapter 1 starts with presenting the underlying problems of our world, which are the main motivation for writing the

(20)

thesis. After, it continues with describing the purpose and justification of the project. The chapter ends with arguing for the research question.

The thesis continues with methodology as Chapter 2. Here, the methodological stance is justified together with the method chosen. The chapter is finalized with the justification and explanation of using a case study approach as well as detailing on the sourced and collection process of the data.

Chapter 3 introduces the theoretical framework as the backbone of the project and the prerequisite to the following parts of the thesis. This chapter has three main pillars: sustainable development, corporate sustainability, and TBL. The discussion includes definitions of these concepts, as well as theories regarding their limitations and arguments for or against them. The chapter is finalized with an outlook for the future by discussing sustainability trends for 2011.

Chapter 4, Green Model, begins with arguments of why there is a need for a model. Then, it continues with presenting the purpose of the framework envisioned. After this, the model is exposed and the four dimensions are discussed in-depth. Then, some of the challenges of such a model are discussed and the Dunphy phase model’ role in the conclusion is explained.

The thesis continues with Chapter 5, Case Study: Royal Dutch Shell. It opens with how the industry and corporation were selected before presenting the case study. First, the economic dimension is studied and analyzed. Second, the analysis continues with the environmental indicators. Third, the social dimension, which is the focus of the Green Model, follows suit. Forth, the last dimension, sustainable thinking is discussed. The chapter ends with a conclusion of the case study based on Green Model.

Chapter 6, Conclusion & New Openings, comes as a conclusion to the thesis, by taking into consideration the case study findings, but also by incorporating the Dunphy phase perspective. This chapter opens with an account of reflections from the case study, before answering the research question. Next, a discussion of implications of findings follows. After, some recommendations for the corporation are presented and limitations of the case study are exposed. Chapter 6 ends with a discussion of potential new openings for research.

However, the thesis continues after the concluding chapter with Ecotopia. Chapter 7 starts with arguments leading to our choice, and it continues with a definition and history of the concept of Utopia. Before describing the actual Ecotopia, there is an in-depth discussion of why the economic model needs to be changed. The chapter is finalized with limitations of the Ecotopia.

(21)

2. METHODOLOGY

This chapter presents the methodological view chosen, the method employed along with justification of the case study. Also included is a discussion on the collection of data and limitations of the case study to come.

2.1. Justification of Systems View

In terms of the three basic methodological views, we believe the systems view best fits our purpose.

We hold the assumption that it is theoretically impossible to create a formula which calculates the sustainability of a corporation in quantitative terms. Thus, the analytical view would not be appropriate. Initially, we considered the actors view as one of two choices. However, if this methodological view was applied, the research would have shed more light on the behaviors and language creation process of individuals. So, the systems view was chosen. In contrast to the causality-oriented analytical view and the socially-constructed actors view, this approach is finality- oriented. In other words, what you want to happen in the future will lead to things in the future (Bjerke 2011). The methods utilized will be based on this conception, because corporate sustainability will affect the future.

In the systems view, ‘the creator of knowledge sees the context as a system, where he/she is looking for regular patterns, interactions and relations’ (Bjerke 2008, p.39). For this reason, the Green Model will be employed. In the conception of reality in the systems view, objective as well as subjective facts are part of the context in order to explain or understand a system. Thus there is an element of interpretation. We believe this conception of reality best describes the situation of our theme’s discourse. On one hand, there is objective reality which is defined by other surrounding parties. On the other hand, corporations have their own interpretation of reality based upon their frames of reference, which are subjective. Thus, the systems view will give us the possibility to analyze the issue of sustainability by taking into account the context and the dynamic relationship between multiple dimensions and different views.

‘In the systems view, it is accepted that a given product can be achieved by different producers that a given procedure can lead to different products’ (Bjerke, 2011). This feature of the systems view best describes how we see the ‘green’ endeavors taken by corporations. By this, we mean different companies might use the same strategies to become green, but yet they might lead to different outcomes. As such, becoming ‘green’ does not come with a recipe. All companies are different, which leads us to conclude that sustainability both challenging and interesting to research, but also rewarding to investigate.

(22)

2.2. Qualitative Research Strategy

Holloway (1997, p.1) indicates that ‘qualitative research is a form of social inquiry that focuses on the way people interpret and make sense of their experiences and the world in which they live (...);

most of these (qualitative researches) have the same aim: to understand the social reality of individuals, groups and cultures’. He further argues that the qualitative research is a way to interpret social reality. As mentioned before, the systems view highlights that the conception of reality is both subjective and objective. Thus, we believe qualitative research will be conducive to a better understanding of the issues of sustainability, because in essence, we are not only looking at actions for the environment, but also at initiatives dedicated to people.

2.3. Justification of Case Study

To fulfill the purpose of the thesis and use the appropriate techniques in the systems view approach, we will develop a case study. We believe it best fits our purpose since it provides an interpretative view of the corporation’s engagement in sustainability. There is no such thing as a mathematical formula of what makes a corporation ‘green’. It cannot be fully expressed in numeric terms, however although we will state how green the corporation is, this is done only to express the balance or imbalance between what is expected and what the corporation is delivering. The focus is placed on describing the positive and negative characteristics of the corporations in terms of sustainability. In addition, the case study approach is appropriate because we are also looking for typical answers, relations, and not averages.

2.4. Use of Green Model

The aim of the case study approach is to qualitatively analyze the selected corporation, with the help of the Green Model in order to measure and expose the unsustainable and sustainable characteristics of the corporation. In other words, it is an illustrative case study. The model is based on four dimensions: economic, environmental, social, and sustainable thinking. The indicators in each dimension will be specific to the industry chosen. The selection of indicators is based on both the Global Reporting Initiative (GRI) framework and own formulated indicators. The conclusion will answer how sustainable the corporation is, which is not a surprise to some, however, the focus is placed on describing its policies and endeavors as a way of not pointing the finger and increasing objectivity.

(23)

2.5. Data Sources and Collection

The Green Model requires the collection of secondary data. To make sure it is reliable and trustworthy, it will be extracted from corporation’s own financial statements and sustainability reports. However, these possess a risk for biased information. In consequence, for the Green Model to be objective, secondary data from indirect sources will also be incorporated. These indirect sources refer to online articles from business journals, newspapers, and non-governmental organizations (NGOs). Primary data is not used because we believe it would not add value or objectivity to our illustrative investigation, as information from interviews or conversations would provide the same information as statements on the official website of the corporation.

2.6. Limitations of Case Study

The study has two main categories of limitations: methodological and conceptual. Methodological limitations refer to the circumstances around data source and selection size. As discussed in chapter 2, the data source is a limitation because of the reliance on the reliability and objectivity of the secondary data from the corporation. In consequence, the findings of this analysis are partly dependent on the accuracy of this information pool. In addition, regarding the method of analysis, the source of data interpretation will influence the interpretation and analysis processes. In essence, the findings and implications of our study are limited to Shell. Although choosing one corporation might be seen as weakness of the application and usefulness of the study, we considered the selection of one company better served our purpose. This is because the aim was to complete an in- depth analysis into sustainability. Having chosen two or more companies, the focus would have been dissipated and the analysis would have been less detailed. However, our initial study contained two corporations. But, as the analysis continued, we realized the two were very similar. As such, it is possible to argue that the findings of our case study might be representative, in part to say the least, of the situation of other market players in the same industry.

From a conceptual perspective, there are two limitations underlying our study: selection of indicators and width of levels included in the Green Model. Regarding the selection of indicators, our study’s findings are limited to the indicators created and selected to be a part of the four dimensions. It is possible that if others or additional indicators had been included, that the final conclusion would have been different. At the same time, findings are based on the disproportionate distribution of indicators. In others words, the dimensions analyzed have a different number of indicators. In our view, having an equal number of indicators in each dimension would not have given more justice to the issues or groups of people studied. The second limitation refers to the fact that the Green Model could have been built based on levels. There were three levels that we

(24)

considered initially, but did not include: industry overview followed by, identification of the industry’s stakeholders, and discovery of key sustainability issues of the oil and gas industry.

However, the focus was the Green Model, which is core of the analysis. Thus, the results of our case study are drawn on the model’s findings only. Gradually, as the case study progressed, we realized that to a great extent, the previous three levels were not necessary to be included in order to convey the message of sustainability from various indicator viewpoints. To address some of the limitations of our study, some recommendations for future research are discussed in the New Openings section in Chapter 6.

(25)

3. THEORETICAL FRAMEWORK

The chapter exposes the theories that serve as the backbone of the project. It includes the theoretical examination of sustainable development, entrepreneurs and corporations as the panacea for environmental and social problems, as well as both pro and against TBL perspectives.

3.1. Model of Theoretical Framework

The theoretical framework is built upon the relation between three main pillars: sustainable development, corporate sustainability, and TBL. The theories will be presented in a thematic manner going from smallest to largest in scope. The reason behind this is logic, as they will be building upon each other. One needs to understand what sustainable development is before going on to presenting corporate sustainability and TBL finally. However, in order to provide a full perspective on TBL, we will also discuss theories that reject its existence. The thesis is based on the assumption that sustainability is possible, and it is the expression of TBL. Thus, the envisioned theoretical framework shows our support for sustainability. Figure 3.1 below provides a visual representation of our envisioned theoretical framework:

Figure 3.1 Model of Theoretical Framework

In conducting the literature review, we used primarily books and online scientific journal articles, and secondarily, online business articles. The keywords used for searching online and in library databases are: sustainable development, sustainability, green corporations, corporate sustainable development, sustainable corporations, corporate sustainability, corporate citizenship, corporate social responsibility, entrepreneurship, sustainable entrepreneurship, triple bottom line, and triple bottom line accounting. The keywords were used individually and in combination.

(26)

3.2. Terminology

3.2.1. Assumed Definitions

The accepted and assumed definition of sustainable development in the thesis is the initial one laid out at the World Commission on Environment and Development (WCED) in 1987. We believe its wide scope best captures the essence and aim of sustainability, a better future:

‘Sustainable development is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs’ (WCED, 1987, p. 43 cited in Hall et al. 2010, p. 440).

The accepted definition of TBL in this thesis is the one formulated by the inventor of this term, John Elkington: ‘TBL stands for simultaneous pursuit of economic prosperity, environmental quality, and social equity’ (Elkington 1999, p. 397).

3.2.2. Sustainable Development vs. CSR

The concept of CSR has been around since the 1950s, well before that of sustainable development (Carroll, 1999, p.268). In the 1970s two of the main contributors to the literature of CSR were Eilbert and Parket. They (1973 cited in Carroll 1999, p. 278) defined CSR as ‘good neighborliness’, meaning that the organization has the responsibility of ‘not doing things that spoil the neighborhood’ on one hand, and also ‘the obligation to help solve neighborhood problems’, on the other hand. ‘Neighborhood problems’ refer to things, such as ‘racial discrimination, pollution, transportation, and urban decay’.

As Hall et al. (2010, p.441) highlighted, ‘in many circles, the term corporate sustainability has become a synonym for corporate socially responsibility’. Bjerke and Rämö (2011, p.123) also added that ‘the concept of CSR remains linked to the concept of sustainable development’. Thus, we believe these two terms have become interchangeable over the years, although in the early days, the CSR discourse was more focused on social problems. As such, we hold the assumption that saying a company is sustainable is the same as saying a company is corporate socially responsible.

3.2.3. Sustainable Development vs. TBL

The TBL discourse is more concerned with how the triple objectives work in relations to each other, while the sustainability discourse deals more with definitions and ways of obtaining sustainability.

Some argue that TBL only provides a way for becoming less unsustainable (Bjerke & Rämo 2011, p.126). However, we believe becoming less unsustainable is better than holding on to old ways of doing business. Sustainable development or TBL are processes of evolution. Thus, as mentioned

(27)

before, we hold the assumption that sustainable development is the expression of TBL, since the two terms are mutually inclusive.

3.3. Sustainable Development

3.3.1. Sustainable Development Defined

The term sustainable development was coined in the 1970s, but became popular with the publication of the World Conservation Report (WCR) in 1980. This report represented the joint forces of the International Union for Conservation of Nature and Natural Resources (IUCN), the United Nations Environmental Programme (UNEP) and the World Wildlife Fund (WWF) against ecological destruction. The purpose of this paper was to raise awareness and provide solutions to the issue of environmental degradation. Thus, the logo of WCR (Figure 3.2) symbolizes the protection of the biosphere through conservation of the ecosystem, genetic diversity, and responsible utilization of the ecosystem (IUCN 1980).

Figure 3.2 Symbol of WCR (Source: IUCN)

At that time, sustainable development was focused on the environment, rather the society. In this report, it is equated and understood as conservation. In their view, there is a distinction between development and sustainability. Development is a measure of economic and social welfare, while sustainability refers to efforts of conservation of nature and resources (IUCN 1980, p.I).

Later, the term gained worldwide popularity when it was set forth in the Brundtland Report at the WCED in 1987. This is the most quoted and widely accepted definition: ‘Sustainable development is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs’ (WCED, 1987, p. 43 cited in Hall et al. 2010, p. 440). This implies that any path, which ensures the well-being of future generations, is said to be sustainable. According to Nilsen (2010, p. 496) the WCED definition represents Weak Sustainable Development (WSD), because of the focus on people, rather than on the planet. Nilsen (2010, p.496) believes it needs to be switched

(28)

to the Strong Sustainable Development (SSD) paradigm, which focuses on nature and people, rather than just society.

In contrast to IUCN’ distinction between sustainability and development, David A. Munro (1995, p.28) defined sustainable development by breaking it down into its two parts. He first defines development, and then moves forward to define sustainable development. He stated that ‘development is any and all kinds of activities or processes that increase the capacity of people or the environment to meet human needs or improve the quality of human life’. He added that for development to be considered sustainable it is necessary to be maintained indefinitely. Munro also saw sustainability as of three kinds: ecological, social, and economic (Munro cited in Trzyna 1995, pp.29-34). Ecological sustainability means caring for the ecosystem by understanding the carrying capacity of the planet and acting within this limit.

As Munro (cited in Trzyna, pp.29-34) mentioned, this carrying capacity is a controversial subject, because it is questioned by some as to whether or not it is even possible to calculate. However, the author clarifies that even if it might be too complex to establish for now, it is clear the planet is limited (Munro cited in Trzyna 1995, p.31). Social sustainability is seen as the symbiosis between development and social values and norms. For instance, if an activity does not threaten the social values of a society, then it is considered to be sustainable (Munro cited in Trzyna 1995, p.32). Lastly, Munro (cited in Trzyna 1995, p.34) theorized that economic sustainability means the balance between the costs and benefits of sustainability. He added that if there is any additional cost, then it should be transmitted to the consumers. As such, the opportunity cost of sustainability can be views as’ the foregone chance of having used time and resource investments to produce something else (Bjerke & Rämö, 2011, p.126).

Another definition that stresses the importance of protecting the environment is provided by Shrivastava (1996, p.24): ‘Sustainable development is development that is conscious of limits of the natural environment to support growth’. He implies that growth is the ultimate goal, however, not growth in the conventional way of thinking. Thus, in his view, sustainability means finding innovative ways of growing (Shrivastava 1996, p.24). More specifically, sustainable development means finding strategies to control the impact of population growth on the ecosystem. And this in turn, means to secure enough food is available for everyone (Shrivastava 1996, p.24). As compared to the above mentioned definitions, this approach focuses on mankind repercussions rather than environmental rescue.

Sustainability is usually illustrated as three overlapping circles standing for economy, environment, and society. However, Porritt (2006 cited in Scott Cato 2009, p.37) considers this the conventional way of thinking about sustainability. These circles (the right side of Figure 3.3 below) show interaction, but not interdependence, which is the case in reality. He proposed another way of

(29)

illustrating sustainability, which better captures the interdependence between economy, environment, and society (circles on the left side of Figure 3.3). The economy is built upon the society, which in turn functions in the environment. Given that the environment is not expandable, the inner circles are limited to the same condition (Porritt cited in Scott Cato, 20009, p.37). As such, this is another way of defining and explaining the necessity for sustainability.

Figure 3.3 Green Economic Thinking vs. Conventional Sustainability Thinking (Source: Scott Cato 2009, p.37)

Another way to define sustainability is to define its antonym. As such, according to Finger and Kilcoyne (cited in Trzyna 1995, pp.244-245) unsustainability is a like a domino effect that starts with industrial development and eventually leads to depleted resources, pollution, and societal erosion.

This continuous process is in fact a vicious circle. The aim of Figure 3.4 below is to provide a general understanding of this dangerous circular process while at the same time sounding an alarm of the difficulty to break it.

Figure 3.4 Vicious Circle of Unsustainability (Source: Trzyna 1995, p.245) Depleted

Resources

Competition for Resources

Pollution Societal

Erosion Industrial

Development

Industrial Production

(30)

The vicious circle begins to function once there is industrial development. This in turn leads to heightened levels of demand. The competition in the market and the fight for profitability induce pollution and depletion of resources. The process ends with societal erosion, before it starts again.

Regarding this people’s aspect, a type of social degradation is individualism. This is seen as one of the fuels for continued industrial development and social and environmental degradation. Other types of degradation are migration and conflict (Finger & Kilcoyne cited in Trzyna 1995, pp.244- 245). In consequence, the vicious is fueled by demand and self-interest.

3.4. Limits and Arguments against Sustainable Development

Due to the controversial nature of sustainable development, many have arrived with arguments against it. Shrivastava (1996, p.33) pointed out that others have said ‘sustainable development contradicts the logic of capitalism’. In essence, ‘capitalism requires the continuous accumulation of capital, through continuous economic growth and consumption. Limiting growth forces capitalist economies into politically and socially unacceptable recessions and depressions’ (Shrivastava 1009, p.33). It is a valid point however, supporters of sustainability like us, would counter argue that growth does not only come in the form of resource depletion. For instance, sustainability is said to possess the potential of giving more jobs to people through the creation of new ways of doing business.

Robinson (2004, pp.369-384) discussed three main critiques brought to this concept: vagueness, fake greening, and sustainable development as an oxymoron. First, the overabundance of definitions of sustainable development is said to make the concept vague. The counter argument is that having a vague definition does not make the issue weak, so it should not be seen as problematic. On the contrary, it should be seen as positive, since it might profit from ‘constructive ambiguity’ (Robinson 2004, p.374). Constructive ambiguity means using vague language in negotiations in order to arrive at an agreement on a sensitive subject (Moore 2011, p.143). In others words, the vagueness of this concept might be an advantage in the fight for becoming sustainable.

The second critique is that it attracts ‘fake greeners’, companies who claim they are sustainable for the sake of their image and income (Robinson 2004, pp.369-384). They engage in ‘cosmetic environmentalism’. Another popular term for this strategy is ‘greenwashing’. Greenwashing is unethical, misleading, and contagious, meaning that if it holds for one company, then others will follow suit (Whellams & MacDonald, 2007). On as positive contribution, many have raised concerns about the issues of false greening and greenwashing. However, since there is no specific instrument for measuring sustainable development, these claims can neither be verified nor rejected (Moore

(31)

2011, p.374). In our view, this kind of ill-intentioned strategies should not be as a weakness of the concept, rather as a consequence of its potential.

The third critique presented by Robinson (2004, pp.369-384) is that sustainable development is an oxymoron in essence, because its ambitions are contradictory. The author suggests it is hard to defend this point, since the natural and social limits of the earth in the light of growth are unknown.

But he adds that sustainable development, sufficient or not, is however necessary. In our view, this critique cannot be disproved yet, only because not enough advancement in sustainability has been made.

Other angles have also been debated. For instance, some say the concept is Western-centric by definition, meaning that growth and development are seen from the Western perspective (Shrivastava 1996, p.32). We have conducted an investigation into the global spread of our own references used for this thesis in order to try to disprove this point. However, as it can be seen in Appendix 1, World Map of References figure, most of the references are indeed from the West.

Moreover, the second figure in Appendix 1, Timeline of References, reveals that most of our sources come from 2010. Although it is very current, it seems that the project reflects the views of the West in terms of sustainability based on our proof. In our view, although this critique stands, we believe globalization has smooth down the differences between nations and this factor is anything but negligible. Another critique is that sustainable development could make developing nations dependent on developed countries (Shrivastava 1996, p.33). This critique makes for an interesting interplay to further research, as all nations are affected by globalization and sustainability efforts. To a certain extent, this critique is valid, however, apart from its dangers; this dependency might have the potential of accelerating sustainability engagement for all involved.

One of the extreme critiques comes from the American Policy Center. This non-for-profit organization believes sustainable development is ‘a Mussolini-type fascism that will only lead to tyranny’ (American Policy Center 2009, p.8). They argue that only through free markets and private property, the world would be able to solve societal and environmental problems (American Policy Center, n.d.). In one of their messages to the public it is said: ‘If you want to keep your guns, your property, and your children and your God, then sustainable development is your enemy!’ (American Policy Center 2009, p.8). In our opinion, this argument implies continuous growth, which is impossible considering our limited ecosystem. Thus, it is clear that defining sustainable development is a challenge; however it should not be seen as a weakness. If something cannot clearly be defined, then this does not imply it is impossible. As such, there is much debate about this concept, but the message has a clear focus:

sustainability is mandatory, no matter which definition is considered.

(32)

3.5. Perception of Sustainability

According to a survey of 766 CEOs conducted by Accenture in 2009, 93% of them considered sustainability ‘very important’ or ‘important’. In addition, 81% of CEOs 'agreed or strongly agreed that sustainability is fully embedded into their companies’ strategy (Accenture 2011, p.13). By contrast, this percentage was at 50% only in 2007. Moreover, 91% of CEOs said they expect to apply new technologies, such as renewable energy and energy efficiency, to address sustainability issues over the next five years (Accenture 2011, p.13). More importantly, 86% of the surveyed management believes sustainability will advance as more tools and frameworks for measuring it become available (Accenture 2011, p.14). Thus, there is growing awareness in the business world for the necessity of developing an accurate reporting sustainability framework. Our hope is that this will lead to more collaboration between market players.

Despite expectations, the global downturn has not affected the importance of sustainability. This is because 88% of the surveyed CEOs stated their companies did not cut the budget for sustainable initiatives as a result of the recession (Accenture 2011, p.16). Regarding motivation to undertake sustainability actions, 72% of CEOs deemed building trust as one of the main incentive for pursuing it (Accenture 2011, p.20).

As it can be observed, sustainability perception numbers are quite promising at first glance.

However, SustainAbility, the UK think tank, believes most companies do not really integrate sustainability into corporate strategy (Watanatada 2011, p.1). In our view, the above statistics point to a misalignment between perception and reality regarding sustainability. From the facts listed above, we may safely arrive at the conclusion that the surveyed CEOs understand the importance of sustainability, but it is possible that their claims are over positive and biased. In other words, they overestimate the embedment of sustainability in their companies.

3.6. Who Will Save the World?

Here, saving the world should be understood in the colloquial sense of the expression. There has been much debate in media and the research community about who will rise up to the challenge of putting sustainable development on the map of our history. In our view, there are four actors that could lead a major role in this endeavor: green entrepreneurs; corporations; governments; and all individuals. However, taken together, these actors form the following three important interplays:

corporations and governments; entrepreneurs and governments; entrepreneurs and corporations.

Although it is hard to say who will dictate the change, it is rewarding to examine each perspective.

(33)

Green entrepreneurs have been deemed by many as the ones able to lead the sustainability fight. In the media, the debates over this group’s capacities keep the front pages of the business magazines on a regular basis. For instance, social entrepreneurs are seen as the saviors because, they have the capacity of creating market incentives for pursuing sustainability. This can be done through changing or creating ‘norms, property rights, and legislation’ (Pacheco et al. 2010, p.464). In other words, they are seen as trend-setters who change ‘the rules of the game’ by adjusting the market to their desired direction (Pacheco et al 2010, p.465). Thus, there is no doubt the potential of green entrepreneurs for societal and environmental change cannot be denied. More reasons and perspectives will be further examined in section 3.7. Entrepreneurs as Panacea. However, in our view, the potential is limited when compared to those corporations, mainly because of insufficient global reach.

Corporations have been seen as, not only the ones capable of bringing about sustainable change, but as those having the responsibility to do so. Although, the blame game makes for an interesting discussion, it is not the focus of our project. Further below, section 3.8. ‘Corporations as Panacea’

discusses different perspectives. This knowledge is the prerequisite for the discussion about corporate sustainability and acts as a testimony of our belief. In essence, taken separately or together with other market players, there are no doubts corporations have the potential of playing one of the major roles in defining our future.

In our view, governments have not only the responsibility, but also the power of bringing about sustainable changes to our economic model. We see governments as large organizations with one main group of stakeholders to satisfy (low or middle class) and huge budgets. Thus, their potential for improving the world is great.

However, governments cannot succeed without followers. As such, a first interplay that could make a difference is corporations and governments working together. We see this partnership as having great potential because the two pars depend on each other. A second promising exchange could come from green entrepreneurs working with governments. In our view, some entrepreneurs have what governments are lacking. As Generation Zero documentary (2010, min.76) states, ‘there is a lack of quality in governmental leadership’. To some extent, governments could greatly benefit from the leadership exhibited by some entrepreneurs. This, points to the urgency of improving the discourse of governmental leadership. A third interplay could be the one between green entrepreneurs and corporations. This already represents a popular discussion in the sustainability agenda. Our investigation has revealed that it has been extensively explored by many in the research community.

As such, section 3.8. ‘Corporations as Panacea’ further details on the potential of this interplay.

(34)

In our view, despite who of the above will rise up to the challenge of sustainability, the most crucial change has to come from within us. ‘It’s people more than anything else that will dictate the future course of life’ (Planeten 2006a, min.8). In essence, all individuals have the duty and potential to make a difference. Our collective actions have contributed to what is happening around us, thus all of us together should act responsibly (Planeten 2006b, min.34). In our opinion, this change will cascade from individuals to entrepreneurs, corporations, industries, and governments. Thus, the domino effect has the potential of changing the economic system to an evolved model based on sustainability. Regarding individuals, skeptics might argue that requiring this type of collective change is a daunting task to say the least. As much as we recognize this, we believe the necessary changes will come with the change of generations, and inherently, mentality. Our generation, the Millennials, has been quoted as promising in terms of the role they will play in the economy and society. First of all, people from this group are described as having a strong inclination towards sustainability. Secondly, they are seen as ‘strong-willed, passionate, optimistic, and eager to work’

(Gloeckler 2008, p.47). Thus, although their impact remains to reveals itself, their potential for shaping for future cannot be overlooked. All in all, great leaders are expected to come out of these moments of alignment and struggle. Warren Bennis and Robert Thomas call these moments

‘crucibles’, ‘after the vessels medieval alchemists used in their attempts to turn base metals into gold’

(Ignatius, 2010, p.12). No matter who the saviors will turn out to be, they will need to recognize the following global symptom in order to be successful: ‘the world is suffering from one thing: the unwillingness to contemplate the scale of changes that are required, the scale of what might happen if nothing is done, and the scale of what needs to be done’ (Planeten 2010d, min.13). In consequence, the urgency for meaningful changes is upon us, since ‘we cannot turn back time, because nature is the time-keeper’ (Planeten 2006c, min.9). For the purpose of our thesis, further discussions on two main actors in the fight for sustainability (entrepreneurs and corporations) are considered below.

3.7. Green Entrepreneurs as Panacea

‘Panacea hypothesis’ is the belief according to which ‘entrepreneurs will save the day’ (Hall et al.

2010, p.441). Green entrepreneurs are believed to have a huge impact on driving the world to a more sustainable place (Schaper 2005, p.27). They are seen as a ‘pull factors’ whereas governments and stakeholders are seen as ‘push factors’, since they have the potential to engage others in adopting green practices (Schaper 2005, p.27).

York and Venkataraman (2010, pp.449-463) theorized that the potential of achieving sustainability is greater under certain conditions for entrepreneurs than for governments and established organizations. They explained this is the case, because entrepreneurs identify environmental issues as

(35)

business opportunities. Their research indicates entrepreneurs are said to have an inclination towards unconquered territory in environmentalism. In addition, York and Venkataraman’s research (2010, p.460) implies that ‘the more uncertain and intractable the environmental problem we face, the greater the likelihood that entrepreneurs can make a contribution to resolving it’. However, their theory about entrepreneurs is challenged by Kuckertz and Wagner (2010, pp. 524-539). They conducted a survey, which included business and engineering students and alumni from three universities. They found that although individual orientation towards sustainability is a factor that increases the chances of becoming a sustainable entrepreneur, this factor’s influence decreases with business experience (Kuckertz & Wagner, 2010, p.524).

3.8. Corporations as Panacea

Corporations are defined as the engines of our economies, thus the ones bringing about growth by using the planet’s resources and human labor (Dunphy et al. 2003, p.3). Thus, corporations are major contributors to the economy, but also the ones that create some negative externalities.

However, in our view, they have the potential to make a huge impact in terms of sustainability, because of their global reach.

This brings up the question of how the current model of the corporation needs to be modified in order to fully integrate sustainability (Dunphy et al. 2003, p.3). According to Hart and Milstein (1999, p.28) the challenge is even greater for developing economies, where the success of this endeavor depends, to a great extent, on the corporations’ abilities to respond to growing demands in new and non-wasteful manners. Shrivastava (1996, p.33) shares the same belief. He highlighted that

‘sustainable development will succeed or fail depending on our ability to create sustainable corporations’.

Some see corporations as major change agents. Stuart Hart, Kenan Flagler Business School (cited in Dunphy et al. 2003, p.10) stated: ‘like it or not the responsibility for ensuring a sustainable world falls largely on the shoulders of the world’s enterprises, the economic engines of the future’. In contrast, Dunphy et al (2003, p.4) see the role of corporations in a more critical light. They think corporations have two options, either to embark on the ship of sustainability or to close their doors.

In their view, this decision is a turning point where, depending on the choice, corporations will be given the right to keep using natural and human resources or not.

However, corporations should not be considered enemies of sustainable development; rather they should be seen as participants with great social impact. Shrivastava (1995, p.vii) assigns no guilt and highlights that sustainability is a ‘competitive, ecological, economic, political, and social necessity’.

For leaders to be successful in driving their organization to sustainability, first they need to

The Corporate Sustainability of Royal Dutch Shell: A Green Model Investigation into One of the Most Pollutant Corporations in the world